President Obama released his fiscal year 2012 budget today. The proposals allocate more resources to Social Security and streamline the process for employers to create new retirement plans, but also cut funding to a job retraining program for senior citizens. Here are some of the provisions most likely to impact retirement savers.
Automatic workplace pensions. The budget proposes requiring employers that do not currently offer a retirement plan to enroll their employees in a direct-deposit IRA account. Employees may opt-out and very small businesses would be exempt from this program.
Tax incentives to create retirement plans. The Obama administration would like to double the value of a tax credit for businesses that start new retirement plans. Under current law, small employers that begin a new pension plan are eligible for a tax credit equal to 50 percent of the start-up expenses up to a maximum of $500 a year for three years. The new budget aims to increase the maximum credit to $1,000 per year.
Pension insurance premium increases. The budget proposes giving the Pension Benefit Guaranty Corporation, the government agency that insures private sector pensions, the authority to adjust premiums and take into account a company’s financial condition when setting premiums. Premium increases would be gradually phased in and two years of study and public comment would be required before implementation. “The President’s proposal is a better approach than raising premiums across the board,” says PBGC director Joshua Gotbaum. “It makes retirements more secure in a way that's both good government and better for business.” PBGC is currently unable to adjust its premiums to reflect the risks that different retirement plan sponsors pose to their retirees.
Senior Community Service Employment Program funding cut. The budget suggests reducing funding for the Senior Community Service Employment Program by 45 percent and transfers the program from the Department of Labor to the Department of Health and Human Services. Billy Wooten, executive director of program operations at Experience Works, says the cuts may hurt older Americans interested in retraining for new jobs. “It makes what we consider to be drastic and untimely reductions to a very successful program,” says Wooten. “The program has proved to be very successful and has stood the test of time in helping thousands of older adults escape poverty and learn new job skills.”
More Social Security funding. Obama’s budget allocates $12.5 billion to the Social Security Administration, up $1 billion since 2010. “This budget request is the minimum the agency needs to continue to reduce key backlogs and to increase deficit-reducing program integrity work,” according to the Social Security Administration. The key aims of the budget increase are to reduce the backlog of disability claims and decrease Social Security fraud.